Tesco Bank launches inflation-linked bond

30 November 2011

Tesco Bank, the retail banking arm of the supermarket giant, has launched an inflation-linked corporate bond for investors seeking inflation-beating returns.

The Tesco Bank Retail Price Index (RPI) Bond will pay a bi-annual coupon of 1%, payable on 16 June and 16 December, which will be adjusted to take into account changes in the index.

The capital value will also be uprated in line with the RPI, which had a reading of 5.4% in October. This means at the end of the eight-year term, investors will get back the capital value of the bond plus any increases in RPI over the term.

Issued in multiples of £1, the bond has a minimum investment of £2,000, and can only be bought through stockbrokers and wealth managers. It can be held in Isas and Sipps.

Applications for the bond will close at 10am on 9 December and the bonds will begin trading on the stock market on 16 December.

Boon to savers

Phil Wong, a stockbroker at Redmayne-Bentley, says the new bond issue is a boon to savers worried about the eroding effects of inflation, adding that recent issues of inflation-linked products demonstrate ‘clear signs of demand' from retail investors.

Tesco Bank's launch comes after RBS unveiled a seven-year inflation-linked bond paying 2% adjusted for RPI.

Investors can buy and sell their Tesco Bank bonds at any time, however the price will fluctuate from the £1 issue price after it lists on 16 December.

Investors should remember that corporate bonds are not covered by the Financial Services Compensation Scheme (FSCS). If Tesco Bank defaulted, the income payments and capital could be at risk.

This article was written for our sister website Money Observer

Add new comment